Scenario 12.2:
Suppose a stream is discovered whose water has remarkable healing powers. You decide to bottle the liquid and sell it. The market demand curve is linear and is given as follows:
P = 30 - Q
The marginal cost to produce this new drink is $3.
-Refer to Scenario 12.2. What is the monopoly price of this new drink?
A) 0
B) $3
C) $13.50
D) $16.50
E) $27

Question

Quizplus · Accepted Answer

To find the monopoly price, we need to set the marginal revenue (MR) equal to the marginal cost (MC).

To do this, we first need to derive the MR function from the demand function:

TR = P*Q 
MR = d(TR)/d(Q)

TR = (30-Q)*Q 
MR = 30 - 2Q

Now we can set MR = MC:

30 - 2Q = 3

Solving for Q, we get:

Q = 13.5

Substituting Q back into the demand function to find P:

P = 30 - Q = 30 - 13.5 = 16.5

Therefore, the monopoly price of this new drink is $16.50. Choice D is correct.

Scenario 12.2: Suppose a Stream Is Discovered Whose Water Has Remarkable Healing